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WASHINGTON, March 2, 2011 /PRNewswire-USNewswire/ — House Committee on Small Business Ranking Member Rep. Nydia M. Velazquez (D-NY) delivered the following statement during a hearing entitled “The Small Business Administration FY 2012 Budget”:

“As we begin our consideration of SBA’s budget request, it is critical that we do so with one eye on the small business economy. Due to the financial crisis beginning in 2007 and the ensuing recession, small firms have faced challenges on several fronts. However, it now appears that small firms are poised to turn the corner. Importantly, credit conditions have eased and optimism concerning revenue growth and the general economy has improved. This resulting increase in business confidence suggests that small businesses will increase employment within the next year.

“Ten years ago, in fiscal year 2002, small businesses were facing extremely similar challenges during a period of fiscal restraint. As the country began to emerge from the recession that began in early 2001, the SBA stood by, ready to help. At that time, the agency spent $973 million – only 1 percent less than its request of $985 million for fiscal year 2012. Today, we find ourselves in a familiar position – trying to make sure that small businesses have the tools they need to create jobs – but doing so in a manner that is responsible to the taxpayer.

“With this in mind, I am troubled by the agency’s continued use of scarce budget authority to fund unauthorized pilot programs. For fiscal year 2012, the SBA proposes to operate seven such initiatives. This includes the Small Loan Advantage program, the Community Advantage program, the Impact Investing fund, the Early Stage Innovation fund, Regional Clusters, the Distance Learning Portal, and the Emerging Leaders program. The cost of the last three alone makes up nearly 10 percent of the SBA’s non-credit programs budget submission.

“Most worrying is that these programs were launched without the public hearings and legislative record that accompanies statutorily authorized programs. Therefore, it is impossible to understand why these programs were created and whether or not they are a good investment for the taxpayer. In addition, several of these programs are clearly duplicative of other agency offerings. The reality is that these are lean times – everyone has to tighten their belt. And this includes the SBA.

“Instead of using these resources for pet projects, the agency should instead be focusing on addressing the priorities raised by its own Inspector General. The first two problems the IG raises in its own budget submission are especially critical and, if addressed properly, would save taxpayer money by reducing waste, fraud, and abuse.

“The first problem the IG identifies relates to SBA’s loan programs. It finds that the agency faces a heightened risk of loss due to expedited loan processing initiatives and its considerable reliance on outside financial institutions. It further notes the majority of loans made under the 7(a) program are made with little or no review by SBA prior to loan approval because the agency has delegated most of the credit decisions to lenders. Numerous IG criminal investigations have identified fraud by borrowers, loan agents, lenders, and other participants in SBA business loan programs.

“In addition, the IG raises concerns about the award of contracts under the SBA’s programs. In 2009, $97 billion in prime contacts were awarded through these programs. However, IG audits, as well as GAO investigations, have identified numerous instances where firms that do not meet these program’s eligibility criteria, but were improperly given contracts anyway.

“These two issues are of such significant magnitude that instead of being buried in the back of the budget submission, they should be front and center. I intend to change this.

“As part of the budget process, this Committee is required to submit its views and estimates to the Budget Committee. Per tradition, the minority will be submitting its own letter. In that letter, I will be recommending that the funding requests for all pilot projects be either denied outright or made available to reduce fraud and waste in the SBA’s programs.

“Doing so is just a small step, but it is essential as we try to balance the objectives of being fiscally responsible, while ensuring that small businesses have the resources they need. This is a challenge, but it is imperative that we overcome it. If we can, small firms will have the tools they need to succeed and create jobs, while taxpayers can be assured that their money is being managed responsibly.

“In advance of her testimony, I want to thank Administrator Mills for appearing here today and providing her insight into the agency’s funding for fiscal year 2012.”